Arizona became the first state to file criminal charges against Kalshi on Tuesday, accusing the prediction market company of operating an illegal gambling business within its borders. This marks a significant escalation in the ongoing fight to regulate the popular platform.
The 20-count charging document accuses Kalshi of accepting bets on political outcomes, college sporting competitions, and individual player performance in violation of Arizona’s gambling laws. The state prohibits operating an unlicensed wagering business and bans betting on elections.
“Arizona will not be bullied into letting any company place itself above state law,” said Democratic Attorney General Kris Mayes.
The criminal case opens a new front in the high-stakes legal battle over whether prediction markets should be subject to the same regulations as gambling companies. The Trump administration has backed the multibillion-dollar prediction market industry, intensifying the state-versus-federal fight for regulatory control.
The outcome could have sweeping implications for how sports betting—which accounts for roughly 90% of Kalshi’s trading volume—is regulated in the U.S.
Kalshi maintains that it is a financial marketplace rather than a gambling operation and should only be regulated by federal authorities, specifically the Commodity Futures Trading Commission (CFTC). The agency, under the Trump administration, has asserted exclusive oversight.
Notably, Donald Trump Jr. serves as a strategic adviser for Kalshi, and the former president’s social media platform, Truth Social, is launching its own cryptocurrency-based prediction market called Truth Predict.
Elisabeth Diana, a spokesperson for Kalshi, dismissed the Arizona charges as “meritless” and accused the state of attempting to circumvent federal court. Kalshi has sued Arizona, Utah, and Iowa to halt anticipated state actions against the platform.
However, U.S. District Judge Michael Liburdi in Arizona, a Trump appointee, denied Kalshi’s request for a temporary block on Tuesday. He ordered the company to demonstrate why the case should be moved to federal court given the new state charges.
At least nine other states have taken some form of legal action against Kalshi. Utah’s Republican governor has pledged to sign a bill that could undercut the company’s business in that state. So far, the outcomes have been mixed.
Federal and state judges in Nevada and Massachusetts have ruled in favor of states seeking to ban Kalshi and its competitor Polymarket from offering sports betting. In contrast, federal judges in New Jersey and Tennessee have ruled in favor of Kalshi.
CFTC Chairman Michael Selig described the legal fight between Arizona and Kalshi as a jurisdictional issue and called the criminal prosecution “entirely inappropriate.”
The state argues that Kalshi is a gambling operation masking itself as a marketplace. Kalshi, however, contends its product is different because customers engage in “swaps” with each other rather than betting against the “house.”
Kalshi operates by allowing customers to buy and sell “Yes” or “No” contracts tied to the probable outcome of an event. Anyone with a smartphone can wager on a variety of topics—from whether it will snow in Miami to whether former President Trump will say a specific buzzword in a speech.
Contracts are typically priced between one cent and 99 cents, roughly corresponding to the percentage of customers who believe that event will happen.
The charges in Arizona were filed just days before the start of the NCAA men’s and women’s basketball tournaments, one of the busiest periods of the year for prediction markets and sportsbooks.
Kalshi recently announced a $1 billion perfect bracket challenge without mentioning the NCAA or March Madness, which are protected trademarks of the NCAA. The NCAA has expressed concern about sports event contracts on prediction markets and their potential impact on its competitions.
https://abcnews.com/US/wireStory/arizona-hits-kalshi-criminal-charges-escalating-fight-states-131166698
